FHA will drop the maximum mortgage loan it will guarantee next month

The Federal Housing Administration will drop the maximum size of home-mortgage loans that it will guarantee beginning next month in nearly 650 counties, the agency said Friday.

The maximum for single-family homes in certain "high-cost" housing markets including Los Angeles, San Francisco and New York will fall to $625,500, from the current level of $729,750.

The FHA doesn’t make mortgages but instead insures lenders against defaults on loans that meet its standards. It allows borrowers to make down payments of just 3.5% and has played an outsized role backstopping mortgages in the aftermath of the housing bust.

You just know those New York and DC types are behind this, trying to harsh our mellow, and kill our housing price leadership.

Well, we just have one thing to say to that: PTHTHBBBT. That’s not going to hurt us here where the Engines of Creativity run 24/7/365.25. No FHA mortgage backstop means everyone has to put 20% down on their above-$625,000 loans. But so what? Everyone here has a brazillion stock options and can buy houses for cash found under their Tesla Model S seat cushions! You know who that’s going to hurt, instead?

If you’re in the middle class and want to buy a home here’s a piece of advice: Move to Ohio (if you’re not already there).

Some 86% of homes in the Akron, Ohio area are within reach of middle-class buyers in the area, the highest share in the nation, according to a report from Trulia, the real estate listings site. The next two cities on the list, with 85% of homes affordable to middle class, are Dayton and Toledo, respectively.

For those of you in the coastal elite who are reading this post for the perverse pleasure of finding out just how unaffordable your city is, you might be surprised to hear that New York isn’t No. 1. San Francisco is the least affordable place to be a middle-class buyer, with only 14% of homes within reach of those making the median San Francisco household income of $78,840, according to Trulia.*

However, we were slightly surprised by the next two most unaffordable places, Orange County and Los Angeles, respectively. New York was the fourth least affordable place to be middle class. After that were San Diego and San Jose and Ventura County.

Sooooo, SF is #1 but Silicon Valley is #6? But note, California completely PWN3D New York and the entire East Coast in the unaffordability sweeps. Washington DC? Shut out by the shutdown. Later, you imperialist running dogs no longer feeding at the public trough for the next few days! When it comes to places nobody can afford to live in, we can revel in our Specialness!

The Trulia link above (yes, of course it works) says that while San Francisco has a 60% higher median income than most-affordable Akron, Ohio, homes there sell for (deep breath, now) seven times as much. Only 14% of homes for sale are affordable to a household earning median income for the area. Even worse, whoops, we mean better, San Francisco has dropped ten more percentage points in affordability since last October when 24% of homes could be purchased by a median income household.

To get slightly wonky, the real formula was what percent of homes’ monthly payments were 31% or less of the median household income, which shows the problem right there. Everyone knows if you want to buy a house in SF, Cash is King. Monthly payment? Might as well ask if they’ll sell you the house for a hogshead of buggy whips.

San Jose’s affordability index per Trulia was 31%, but then again, none of the contenders were anywhere close to SF. Second-place Orange County came in with only 23% of homes rated affordable by the “middle class.”

Trulia also provided a “maximum affordable home price” for each area. Let’s take a look at what you get for that price. Here’s a 5 BR/3 BA in SF at only $10K less than the maximum affordable amount. Of course this house is in Bayview and it has some permit issues, but you can’t have everything.

Contrast to how far your dollar S-T-R-E-T-C-H-E-S in San Jose!

Wow, a gated estate with lots of CAPITAL LETTERS and it’s yours AS IS, which means the seller won’t switch houses on you! And just for giggles, let’s see what an “affordable” house in Akron (highest affordable house: $226K) looks like.

OMG look at that house! Those bricks are going down into a big ol’ pile as soon as The Big One hits! Not only that, it would take at least a couple more hours to get to Google from here than the other two houses we showed you. And when you look out in the boonies like this, notice what you don’t get: a decent fence around the place to keep the nosy neighbors away.

We won’t even get into the difficulty of transferring into Cupertino schools.

July 6, 2013

Any reader of this blog knows that some parts of the Bay Area are just better than others, and that’s what we call the “Real Bay Area.” Do you know where the RBA is? According to this study, it’s probably north of you.

People tend to see the north as more desirable and affluent, in turn fueling stereotypes about where the rich live

Most people, knowing nothing else about a city, would rather live in the northern half of town than in the southern, says Brian Meier, associate professor of psychology at Gettysburg College in Gettysburg, Pa. People tend to see the north as more desirable and affluent, in turn fueling stereotypes about where the rich and the poor live.

"For some reason, people see the north and south as very different," Prof. Meier says. "When all else is equal, people have this bias to think that northerly areas are better or more affluent.

Prof. Meier and co-authors Arlen Moller of Northwestern University, and Julie Chen and Miles Riemer-Peltz, both of Gettysburg College at the time, conducted four studies with groups ranging from 28 to 87 participants to see how "north" and "south" affects housing preferences. The study, "Spatial Metaphor and Real Estate: North-South Location Biases Housing Preference," was published in Social Psychological and Personality Science in August 2011.

We’re going to note a fairly seriously flaw in this study (or at least Tanaka’s description of it) right off the bat: the participants aren’t identified in terms of where they live. We know what schools the researchers did the study out of, but this article doesn’t indicate if the participants were from the surrounding regions, randomly chosen throughout the United States, or were a worldwide sample. And that’s actually an important bit of data. How could they possibly assume that all people, everywhere, prefer the north side of a city when we don’t know if anyone from the Southern Hemisphere was represented? Maybe South is the “better side” in Buenos Aires, Melbourne, and Christchurch. Maybe South is superior if you get too far north as well, as it would get more sun. Northern exposure isn’t a good thing if you want sunlight.

This silly study suggests people are so used to thinking of north as “up” on a map, that they conflate the direction with the emotion. We’ve just found that prices keep heading north as long as you’re looking at the RBA. Although the heat map of Santa Clara County above suggests that high prices are found not in the north, but the northwest and to a lesser degree, the northeast. North Central, though, does not impress..And the map at right shows sales for hot, hot, HOT Mountain View, hottest in the part that is the Exact Opposite Of North.

And… open thread! What direction are you heading to check out Open Houses this weekend? Or, if you’re on vacation and can’t stay away from us, what direction did you head for your getaway?

The conventional wisdom of the housing crisis goes something like this: Too many people bought homes as the housing bubble inflated. Some were unlucky in their timing, while others overextended themselves by putting too little money down. All of these top-of-the-market purchases led to an explosion of foreclosures once home prices dropped sharply and the economy hit the skids.

Amid the current debate about whether a new bubble is forming in the housing market, it’s worth looking at a paper published in March that challenges conventional wisdom by showing that a significant share of foreclosures came from people who bought their homes before 2004.

So why did so many people who bought their homes before the housing bubble fully inflated end up losing their homes anyway?

The paper concludes that if only California had laws like Texas (which forbids borrowing more than 80% of home equity), not only would fewer FBs gotten F’ed, but homeowners (as opposed to homedebtors) would have had more money to spend because houses wouldn’t have cost so much.

Which is ridiculous, because why do you think these FBs borrowed all that equity in the first place? They sure as heck didn’t invest it in infrastructure. Heck, no. They spent it. We’re cheered to see Larry Roberts (OC Housing News) agrees with us.

Then again, that study also says people defaulted because (among other reasons) they assumed their home prices would keep going down. This shows why the study was in Los Angeles instead of the Real Bay Area. Everyone knows in the RBA, prices only go up.

There’s also a very important reveal in the paper. Laufer’s model shows that home prices would be 14% lower if all that equity extraction hadn’t taken place. And as we know, the Real Estate industry will simply not allow that to happen. They might as well throw away tax-deductibility of mortgage interest too.

January 21, 2013

As the RBA Bubble 2.0 continues expanding, look for more overdone listing copy. This has been Scientifically Proven. Thanks very much to Burbed reader nomadic for passing along this AMAZING find from the BEST real estate section in the UNIVERSE.

What is a fabulously awesome way to sell an incredibly terrific home? Try a little hyperbole.

Spread Sheet asked real-estate listings company Zillow to analyze 14 enthusiastic adjectives like “amazing,” “beautiful” and “fabulous” in home listings going back to 2007. The findings: For homes priced at $1 million or higher, overall hype is up more than 58% from five years ago.

What are the most commonly used adjectives? “Beautiful” ranks first in the select list, appearing in more than a quarter of luxury home listings. “Great” comes next at 21.6%, followed by “gorgeous” at 9% and “fabulous” at 6.9%. The word that saw the biggest uptick since 2007 is “pristine,” which has seen a nearly 140% increase in use.

The words we keep noticing are “Regular sale” and “Not a short sale” and “Honest, we swear, no foreclosure here” and “Ignore those rude letters from the bank!” But we’ve seen “pristine” as well.

This also reminds us of an observation from Freakonomics, where realtards let each other know which houses are utterly skippable by using the most overblown adjectives possible. A house worth seeing will have specifics instead. So you’d want to check out a “Vintage bungalow with hardwood flrs, cherry cabinets, granite & SS appliances inc Sub-Zero fridge” but maybe pass on the “Stunning house, great neighborhood, beautiful find, WOW!” that sounds very excited but describes nothing.

Rob and Julia Israch won a fierce bidding war for a three-bedroom townhouse in Mountain View, Calif., late last year even though their $750,000 offer—while $92,000 above the asking price—was topped by 11 rivals and was several thousand dollars below the highest bid.

A key reason: The seller, software engineer Lev Stesin, was moved by a letter in which the Israchs said they worked in the technology industry and explained how the home’s spacious layout would be perfect given the imminent arrival of their first child. Among other things, the townhouse has three bathrooms, a wood-burning fireplace and a roomy backyard.

The only problem with this real estate story is the author’s contention that it isn’t just happening where it’s Special, namely Mountain View. Pitch letters are also going to sellers in Seattle, San Diego, suburban Chicago, and Washington D.C. Hah, and you thought we were going to say Belmont or something. No, we really meant places where it isn’t Special at all (e.g. where you can make an offer and be the only one! Redfin’s CEO said 95% of the offers their agents made in Silicon Valley had competing offers.)

The WSJ piece included two examples of House Begging Letters that worked. Both were from Silicon Valley buyers. Here’s one.

Note the use of photos. Don’t beg without them. Also don’t house beg with form letters. You’re going to have to write an individual letter for each seller, calling attention to their home’s marvelous features. Comments such as “Of all the 1954 era crapboxes we looked at today, yours had the fewest pet odors and the least offensive paint scheme” will probably not be effective. Some tips:

Remind the seller how attractive your offer is. You could write this note on the back of a hundred dollar bill to show how many more you have waiting.

Mention all the things you have in common with the seller, so they identify with you and not any of those other Less Special buyers. If you can’t find the sellers on social media, a good private detective can ferret that info out. Or spend some of those C-notes on the gabbiest neighbors.

Gush about their house and neighborhood without overdoing it. Otherwise they’ll figure you’re using irony. After all, it is one of several hundred 1954 era crapboxes in the tract. But — close to Google! (Don’t mention this if they tried and failed to get jobs there.)

Describe your difficult house hunt without sounding whiny. If you can fake sincerity here, you’ll have it made:

A few years ago, the owners of an older Los Altos home got more than 21 offers and picked the one from a woman who also submitted a love letter from her dog, said Kathy Bridgman, an Alain Pinel Realtors agent who represented the sellers. “She won’t touch a thing,” promised the letter, signed with a paw print. “I will be able to play in the yard.”

After closing, the buyer immediately tore down the home and built a bigger one.

Note: In case you’re noticing that we’ve repeatedly reformatted this piece, you’re correct. Our blogging tools aren’t as compatible with each other as we wish they were. In this particular case, one tool supports photo captions but won’t strip styles out properly, the other is the reverse. Don’t even get us started on what WordPress is doing to both of them.

And yet, let’s say this drop-dead-gorgeous spec palace did not find a buyer for $45 million (or, we assume, anywhere near that vicinity) when it was first listed this February. What do you do?

You could cut the price ten million or so. And it looks like that was tried as well, as the most recent price last week is $35.88M. And yet, the house is still sitting there, all lonely on its double lot and intense blue skies obtained with the finest Photoshop filters. What’s the next step to avoiding serious financial fail?

In this case, the solution (or at least the next attempt at avoiding a catastrophe) is to put the house up for auction. The starting price will be $25 million. At least one website actually states this is going to result in the home selling for last February’s price.

Alas, we missed the preview yesterday afternoon. But the auction will be on December 30th, giving you plenty of time to contact the right people and get yourself in on the fun.

Click the image at right to see the home’s brochure and many more pictures in tones of sapphire and sunset. You can also drool all over the home’s website if the brochure isn’t enough house porn for you.

So, is the market bubble over already, or did the home builders simply overreach with a $45 million ask? What do you expect the place to fetch at auction? Is the opening $25 million minimum sufficient to move this mess?

November 10, 2012

As housing prices nationwide start to recover from their depths, home prices in Silicon Valley are close to an all-time high.

Many Silicon Valley cities have come nearly all the way back from the real-estate bust of just a few years ago, in terms of how much buyers are willing to pay per square foot for existing single-family homes.

Driven by technology employees looking to buy and a constrained housing supply, Los Altos, Palo Alto and Burlingame have registered the strongest comebacks. During the third quarter of this year, home prices in those cities were just several percentage points away from peak levels in 2008, according to new data from research firm DataQuick

[snip]

WOOT!

Congratulations Bay Area. We are officially back and on track.

This weekend, go out and put a bid on every house. I predict that 2013 will be the year that the starting price of every home will be $1,000,888!

PALO ALTO—Kurt Varner moved to Palo Alto from Los Angeles in March to start an Internet company. But instead of renting an apartment, the 25-year-old has been residing in a different kind of abode: his car.

Every 72 hours, Mr. Varner moves his car around Palo Alto to avoid violating the city’s parking rules, and he tries to be as inconspicuous as possible to local residents and other car-dwellers. Mr. Varner sometimes does some rudimentary cooking at a co-working space in Mountain View, where he codes during the day. And he showers at a local 24 Hour Fitness gym. His total cost for the gym and co-working space is $139 a month.

Living in his car is the only way he can afford to be in Silicon Valley right now, says Mr. Varner, whose wife, a teacher, lives in Los Angeles. Mr. Varner, who has been effectively homeless for the past few months, says he can’t afford to pay rent on two places but will move into an apartment in the area this month when his wife moves up.

He says he is excited about working on something he is passionate about, but being homeless is “a little scary.”

So it’s not enough to find out that some people love Palo Alto so much they’ll live at the office. Every single night. Because they don’t live anywhere else. Now we’ve got people living in their cars because it’s completely legal to live in your car in Palo Alto.

No wonder there’s only one mobile home park in Palo Alto. There’s too much lowball competition! How can Buena Vista possibly compete with BMW?

This is also your Weekend Open Thread, so have at it. Did you see anyone living in their cars when you toured Open Houses this weekend? Where are the best places to park?

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